Electric Program The Rural Electrification Act of 1936, as amended (7 U.S.C. 901-950b), established the Administration as a lending agency with responsibility for developing a program for rural electrification.

The act requires that preference be given to nonprofit and cooperative associations and to public bodies. With the agency's assistance, rural electric utilities have obtained financing to construct electric generating plants and transmission and distribution lines to provide initial and continued adequate electric service to persons in rural areas. Telephone Program In 1949 the Administration was authorized to make loans to provide telephone service in rural areas. Congress directed that the rural telephone program be conducted to "assure the availability of adequate telephone service to the widest practicable number of rural users of such service." About 75 percent of the telephone systems financed by the agency are commercial companies, and about 25 percent are subscriber-owned cooperatives.

Loans Loans are made from the Rural Electrification and Telephone Revolving Fund, which was established in 1973 in the U.S. Treasury. By law, Administration loans are made at a 5-percent interest rate. The Administrator may approve loans at interest rates as low as 2 percent where there is a finding of extreme hardship.

Since 1973 the Administration has advanced more loan funds to its borrowers than it has received in payments on loans. The Fund obtains the additional funds necessary to meet its interest expenses and loan advances from the U.S. Treasury by direct borrowing and sale of Certificates of Beneficial Ownership to the Federal Financing Bank, which is located in the Treasury. Interest paid by the agency on funds obtained from the Treasury is several points higher than the agency is permitted to charge borrowers.

In 1986 a direct discount prepayment program was authorized by Congress whereby, during fiscal year 1987, rural electric and telephone utilities could voluntarily prepay their Administration

notes at discount. Fifty rural electric telephone borrowers prepaid $428 million on a total of $727 million debt outstanding to the Treasury at a rate discounted to 59 percent of face value. The utilities paying off their debt were located in 17 States serving 700,000

consumers.

Loan Guarantees The Administration also guarantees loans made by other lenders, mainly for large-scale electric and telephone facilities. Guarantees are considered if such loans could have been made by the agency under the Rural Electrification Act, and may be obtained from any legally organized lending agency qualified to make, hold, and service the loan. All policies and procedures of the agency are applicable to a guaranteed loan.

In 1974 the agency entered into an agreement with the Federal Financing Bank, whereby the Bank agreed to purchase obligations guaranteed by the Administrator. The Administration acts as the agent for the Bank and all borrower dealings are with the agency. In 1981 the Rural Electrification Act was amended to require the Bank to make loans under an agency guarantee if requested to do so by a borrower with such a guarantee. Most guaranteed loans received by agency borrowers are made by the Bank. Prepayment of Loans In a repayment program authorized as part of the Omnibus Budget Reconciliation Act of 1987, 109 borrowers from the Rural Telephone Bank paid off all or part of their outstanding notes, without premium, in fiscal year 1988. A total of $131.3 million in prepayments was deposited in the United States Treasury. Forty-three utilities paid off their loans in full, while 66 paid off a portion of their outstanding balances.

Six generation and transmission systems were given approval to refinance their long-term, high-interest Federal Finance Bank loans, without premium, in the private sector with a full Administration guarantee. Congress required the Administration to approve $2 billion in Bank refinancing as part of the act.

Supplemental Financing A 1973 amendment of the Rural Electrification Act states that it is the policy of Congress that "rural electric and telephone systems should be encouraged and assisted to develop their resources and ability to achieve the financial strength needed to enable them to satisfy their credit needs from their own financial organizations and other sources."

When the Administration approves electric loans it requires most borrowers to obtain 30 percent of their loan needs from nonagency sources without an agency guarantee. These nonagency sources include the National Rural Utilities Cooperative Finance Corporation, which is owned by electric cooperatives and the Bank for Cooperatives.

Telephone borrowers obtain supplemental financing from the Rural Telephone Bank, an agency of the United States that was established in 1971. Loans are made to telephone systems able to meet the Bank's requirements. Bank loans are made for the same purposes as loans made by the Administration but bear interest at a rate consistent with the Bank's cost of money Effective in fiscal year 1988, the budget act changed the method of determining Bank interest rates.

The Rural Telephone Bank is managed by a 13-member board of directors. The Administrator serves as Governor of the Bank until conversion to private ownership, control, and operation. This will take place when 51 percent of the Class A stock issued to the United States and outstanding at any time after September 30, 1995, has been fully redeemed and retired. The Bank board holds at least four regularly scheduled meetings a year. Activities of the Bank are carried out by Administration employees and the Office of the General Counsel of the U.S. Department of Agriculture.

Rural Development Effective in fiscal year 1988, Omnibus Budget Reconciliation Act gave rural electric distribution systems an option to invest their general funds, in an amount up to 15 percent of their total plant value, in rural development and other non-utility

projects, without obtaining approval of the Administrator. In addition, it established a Rural Development Program to provide interest-free loans and grants to electric and telephone borrowers for the promotion of

economic development and job creation projects.

For further information, contact the Public Information Office, Rural Electrification Administration, Department of Agriculture, Washington, DC 20250. Phone, 202-382-1255.

Federal Crop Insurance
Corporation

[For the Federal Crop Insurance Corporation statement of organization, see the Federal Register of June 10, 1976, 41 FR 23443]

The Federal Crop Insurance Corporation was created within the Department of Agriculture under title V of the Agricultural Adjustment Act of 1938, and cited as the Federal Crop Insurance Act, as amended (7 U.S.C. 1501). The primary goal of the Corporation is to improve the economic stability of agriculture through a sound system of crop insurance.

All capital stock of the Corporation is owned by the United States. The agency's management is vested in the Board of Directors, subject to the general supervision of the Secretary of Agriculture. A manager, appointed by the Secretary, is charged with running the day-to-day operations of the Corporation and providing policy leadership to achieve the Corporation's goals.

The Federal Crop Insurance Act of 1980 (7 U.S.C. 1501) lifted many of the previous limitations that restricted the growth of the crop insurance program. The most significant areas affected by the act of 1980 are the expansion of crop insurance availability and the number of crops eligible, and changes in the delivery system.

For the 1988 crop year, crop insurance is available for more than 50 crops in over 3,000 counties in all 50 States. Crop insurance is available on all of the crops formerly covered by the Agricultural Stabilization and

insured loans is determined by the Secretary of Agriculture and does not exceed the cost of money to the Government, plus up to 1 percent additional. Loans may be made by the Administration or by other lenders with an agency guarantee. Guaranteed loans bear an interest rate negotiated by the lender and the borrower.

Loans to Indian Tribes Loans to Indian tribes and tribal corporations are made for the acquisition of lands, including interests therein within the reservation or community. Loans are made for up to 40 years. The interest rate is set periodically, based on the cost of Government borrowing.

Loans to Associations Loans may be made to eligible groups of farmers and ranchers to carry out soil conservation measures and for shifts in land use to develop grazing areas and forest lands. Rural Housing Loans Section 502 loans are made to very low- and lowincome families for housing in rural areas. Loans can be made to build, purchase, repair, and refinance homes. The maximum term can be 38 years, and the loan may be for 100 percent of the appraised value. The basic interest rate is determined periodically, based on the cost of money. Borrowers may qualify for annual subsidy on the loan, which can reduce the interest rate to as low as 1 percent. Cosigners on promissory notes may be permitted for applicants who are deficient in repayment ability.

Builders may obtain from the Administration "conditional commitments" that are assurances to a builder or seller that if their houses meet agency lending requirements, then the agency may make loans to qualified applicants to buy the houses.

An owner-occupant may obtain a section 504 loan of up to $15,000, or, in the case of senior citizens, a grant of up to $5,000 to remove hazards to the health and safety of the family. These loans, available to very low-income families, are made at 1 percent interest.

Loans are made to private, nonprofit corporations, consumer cooperatives, State or local public agencies, and individuals or organizations operating on

a profit or limited profit basis to provide rental or cooperative housing in rural areas for persons of low and moderate income. Maximum term is 50 years. Rental assistance may be available to help defray rent paid by low-income families.

Loans and grants are authorized for housing for farm laborers.

Loans repayable in 2 years are authorized to nonprofit organizations to purchase and develop land for resale as homesites for persons of low-tomoderate income.

Watershed Protection and Flood Prevention Loans These loans enable local organizations approved by the Soil Conservation Service to finance projects that protect and develop land and water resources in small watersheds.

Loans may be repaid over 50 years at an interest rate based on the average rate paid by the U.S. Treasury on obligations of similar maturity. Total loans outstanding on any one watershed project may not exceed $10 million. Authority for these loans is contained in section 8 of the Watershed Protection and Flood Prevention Act of 1964 (16 U.S.C. 1006a).

Resource Conservation and Development Loans These loans enable sponsors of projects approved for operation by the Soil Conservation Service to finance projects for natural resource conservation and development in designated areas. Such loans may be made for periods up to 30 years with repayment of principal and interest deferred up to 5 years, if necessary. Authority for these loans is contained in section 32(e) of the Bankhead-Jones Farm Tenant Act (7 U.S.C. 1011(e)) and subtitle A of the Consolidated Farm and Rural Development Act (7 U.S.C. 1921). Community Programs Loans Loans are authorized to public and quasi-public bodies, nonprofit associations, and certain Indian tribes for essential community facilities, such as water and waste disposal systems, fire and rescue, and health care. Necessary related equipment may also be purchased.

The interest rate is set periodically and is based on yields of municipal bonds.

Electric Program The Rural Electrification Act of 1936, as amended (7 U.S.C. 901-950b), established the Administration as a lending agency with responsibility for developing a program for rural electrification.

The act requires that preference be given to nonprofit and cooperative associations and to public bodies. With the agency's assistance, rural electric utilities have obtained financing to construct electric generating plants and transmission and distribution lines to provide initial and continued adequate electric service to persons in rural areas. Telephone Program In 1949 the Administration was authorized to make loans to provide telephone service in rural areas. Congress directed that the rural telephone program be conducted to "assure the availability of adequate telephone service to the widest practicable number of rural users of such service." About 75 percent of the telephone systems financed by the agency are commercial companies, and about 25 percent are subscriber-owned cooperatives.

Loans Loans are made from the Rural Electrification and Telephone Revolving Fund, which was established in 1973 in the U.S. Treasury. By law, Administration loans are made at a 5-percent interest rate. The Administrator may approve loans at interest rates as low as 2 percent where there is a finding of extreme hardship.

Since 1973 the Administration has advanced more loan funds to its borrowers than it has received in payments on loans. The Fund obtains the additional funds necessary to meet its interest expenses and loan advances from the U.S. Treasury by direct borrowing and sale of Certificates of Beneficial Ownership to the Federal Financing Bank, which is located in the Treasury. Interest paid by the agency on funds obtained from the Treasury is several points higher than the agency is permitted to charge borrowers.

In 1986 a direct discount prepayment program was authorized by Congress whereby, during fiscal year 1987, rural electric and telephone utilities could voluntarily prepay their Administration

notes at discount. Fifty rural electric telephone borrowers prepaid $428 million on a total of $727 million debt outstanding to the Treasury at a rate discounted to 59 percent of face value. The utilities paying off their debt were located in 17 States serving 700,000 consumers.

Loan Guarantees The Administration also guarantees loans made by other lenders, mainly for large-scale electric and telephone facilities. Guarantees are considered if such loans could have been made by the agency under the Rural Electrification Act, and may be obtained from any legally organized lending agency qualified to make, hold, and service the loan. All policies and procedures of the agency are applicable to a guaranteed loan.

In 1974 the agency entered into an agreement with the Federal Financing Bank, whereby the Bank agreed to purchase obligations guaranteed by the Administrator. The Administration acts as the agent for the Bank and all borrower dealings are with the agency. In 1981 the Rural Electrification Act was amended to require the Bank to make loans under an agency guarantee if requested to do so by a borrower with such a guarantee. Most guaranteed loans received by agency borrowers are made by the Bank. Prepayment of Loans In a repayment program authorized as part of the Omnibus Budget Reconciliation Act of 1987, 109 borrowers from the Rural Telephone Bank paid off all or part of their outstanding notes, without premium, in fiscal year 1988. A total of $131.3 million in prepayments was deposited in the United States Treasury. Forty-three utilities paid off their loans in full, while 66 paid off a portion of their outstanding balances.

Six generation and transmission systems were given approval to refinance their long-term, high-interest Federal Finance Bank loans, without premium, in the private sector with a full Administration guarantee. Congress required the Administration to approve $2 billion in Bank refinancing as part of the act.